How to increase your profits from income without moving a finger Personal Finance
(Charlene Reinhart, CPA)
Dividend stocks provide one of the most convenient ways to earn extra income while you sleep. All you have to do is select the dividend-paying stocks you want in your portfolio and watch the flow of distributed deposits into your account. The best part is that you may be eligible to increase your dividend income automatically without doing anything extra on your part.
Below, we’ll dive into a tried-and-true strategy to help you boost your dividend income for years to come.
Start earning stock dividends
If you’re ready to start your dividend journey, you’ll need to invest in companies that reward shareholders with dividends. Not every company does this, so you’ll have to do some quick research to make sure some of the companies on your watch list are paying dividends.
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Here’s how it works. When a company makes money, it can do two things:
- Re-invest the money in the company
- Bonus shareholders with additional income
Some companies will do a little bit of both. Takes Microsoft (NASDAQ: MSFT), for example. This trillion-dollar technology powerhouse continues to invest in its cloud business, while paying an annual dividend of $2.48 per share (as of June 2022) to shareholders. But if you want to earn your first $1,000 of Microsoft earnings, you’ll need roughly 404 shares of stock. At the current Microsoft stock price, you’d need to distribute six figures to make that happen.
That’s why you want to define your goals and risk tolerance, and then research companies that go along with that. If your goal is to invest in companies that raise their annual dividends every year, and you want to diversify your portfolio with companies that go beyond technology, you’ll want to turn your attention to a special breed of stocks. We’ll discuss that next.
Unleash Profit Growth Opportunities
Some companies commit to the same annual dividend payout each year. Other companies have a track record of constantly increasing their profits. These companies may be part of the Dividend Aristocrats or Dividend Kings club if they have been in the game for some time.
Dividend Aristocrats demonstrated their commitment to shareholders by offering dividend increases each year for at least 25 consecutive years. Here are some examples of companies that made it to the list:
- Cardinal’s health
Then there is the elite group of dividend payers on the list who have paid and increased their base dividend for at least 50 consecutive years. Here is a preview of the earnings kings:
- Procter & Gamble Inc
- Colgate Palmolive
- Johnson & Johnson
Increase your income while you sleep
Let’s say you invest in a company that has crowned Dividend Aristocrat. The company paid an annual dividend of $3.48 per share last year and plans to increase the amount to $3.65 per share this year. That might not seem like a big deal, but it all adds up.
If you had 1,000 shares of company stock, you would have earned $3,480 last year. The dividend increase this year will be $3,650. That means you earned an extra $170 without moving a muscle.
Imagine getting a dividend bump every year for the next 20 or 30 years. If the company continues to increase its annual dividend, your income will automatically increase, as long as you stick to the stock.
Investing in dividend growth stocks can set you up for an automatic salary increase for the rest of your life. Although past performance does not always guarantee future success, these companies have a proven track record that can help you get started on your journey.
Diversify your portfolio with dividend growth stocks
Creating a dividend income growth strategy doesn’t mean you have to forego other types of stocks and investments. Dividends can fit into a well-diversified portfolio of assets that align with your goals and risk tolerance.
Start building your watch list, do your research, and find companies that increase their profits. These small increases in profits each year can lead to thousands of additional dollars in the long run. The best part is that you don’t have to move your finger to earn your rewards.
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Charlene Reinhart, CPA has positions at Caterpillar and Microsoft. Motley Fool has and recommends positions at Microsoft. Motley Fool recommends Johnson & Johnson. Motley Fool has a disclosure policy.